Bombardier Stock Is Inches Away from Concluding Its Bear Market

Bombardier_Stock
Credit: iStock.com/agawa288

Bombardier Stock Is on the Verge of a New Bull Market

Bombardier Inc (OTCMKTS: BDRBF, TSE: BBD.B) stock has not been for the faint of heart; it has experienced quite the roller coaster ride in recent months. The volatility began when Boeing Co (NYSE: BA) filed a complaint against Bombardier with regards to a deal that Bombardier had made with Delta Air Lines, Inc. (NYSE: DAL) regarding their “C-series” jets.

The International Trade Commission (ITC), which is a U.S. agency, responded in September by levying a 220% tariff on the cost of these jets. The news of this tariff caused the BBD.B stock price to plummet.

This news sent shock waves around the world, since many jobs are at stake, not only the ones in Canada. A savior has stepped up to the plate in Airbus SE (OTCMKTS: EADSY). Airbus, which is a longtime rival of Boeing, has partnered with Bombardier in a joint venture in which the C-series jet will be added to the Airbus catalog of airplanes, increasing their appeal to potential buyers.

This joint venture has been well received by the investment community; investors have rushed into BBD.B stock, pushing the price higher. This newfound enthusiasm is setting the stage for an impressive advance—an advance that has brought Bombardier stock within sight of testing a very influential level of price resistance.

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This level of price resistance is highlighted on the following stock chart.

Bombardier stock chart

Chart courtesy of StockCharts.com

This price chart illustrates a bear market that has been in play since Bombardier stock peaked in August 2000, in the midst of the dotcom bubble. This bear market contains the quintessential characteristic that defines bearish trends: a sequence of lower lows and lower highs. This trend was directly responsible for taking the share price from a high of $21.85 to a low of $0.72.

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This bear market, which has erased 96.7% of the company’s market value, is best defined by using a simple downtrend line. This downtrend line is created by connecting the sequence of higher highs, and it has acted as a significant level of price resistance that has thwarted all attempts at moving beyond it.

This downtrend line, which is now 17 years in development, is what separates BBD.B stock from a true bull market. In order to stage a move toward higher stock prices in hopes of creating a bullish trend, the first step would involve breaking above this downtrend line.

I have the inclination to believe that such a feat is currently on the horizon because a particular technical price pattern is implying that resistance outlined by the downtrend line is set to be broken.

The technical price pattern that I am referring to is highlighted on the following BBD.B stock chart.

BBD.B stock chart

Chart courtesy of StockCharts.com

The technical price pattern that has been highlighted on the stock chart is a “cup and handle” pattern.

A cup and handle pattern is characterized by two distinct troughs, in which the first trough is much larger than the second. These troughs are created due to a significant level of price resistance that prevents the stock price from advancing beyond it.

On October 17, Bombardier stock gapped higher, following the company’s joint venture with Airbus. This price action completed the cup and handle price pattern. The completed pattern is now suggesting that higher stock prices are on the horizon.

The great thing about this technical price pattern is that, aside from just suggesting that higher stock prices are in development, it provides a potential price objective that can be used as a target for an applicable trading strategy.

This price objective is obtained by taking the depth of the cup and extrapolating that value above the significant level of price resistance that defined this pattern. Using this logic on the pattern that is painted on the BBD.B stock chart creates a price objective of $3.80.

This objective implies that the downtrend is set to be broken. A broken downtrend line will go as far as to suggest that a new bull market is in development, meaning that the move towards higher Bombardier stock prices is only in its infancy.

Analyst Take:

Bombardier stock is testing a very significant downtrend line, and there are indications suggesting that this trend line is set to be broken. Such a feat will indicate that a 17-year bear market in BBD.B stock has finally concluded, which implies that a new bull market is potentially only in its infancy.